Carl Sells His Principal Residence, Which Has an Adjusted Basis

question 176

Multiple Choice

Carl sells his principal residence, which has an adjusted basis of $150,000 for $200,000. He incurs selling expenses of $20,000 and legal fees of $2,000. He had purchased another residence one month prior to the sale for $380,000. What is the recognized gain or loss and the basis of the replacement residence if the taxpayer elects to forgo the §121 exclusion (exclusion of gain on sale of principal residence) ?

• A) $0 and $380,000.
• B) $0 and $408,000.
• C) $28,000 and $352,000.
• D) $28,000 and $380,000.
• E) None of the above.

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Definitions:

Convergent Thinking

A cognitive process in which a person attempts to find a single, correct answer to a problem.

Deductive Reasoning

An analytic approach where an outcome is concluded from the synchronization of several bases presumed to be true.

Inductive Reasoning

A method of reasoning in which general conclusions are drawn from specific observations or instances.

Divergent Thinking

An approach or technique adopted to produce innovative ideas through the examination of numerous potential answers.